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June 24 —Chemical manufacturers located outside the European Economic Area, but exporting to
it, should review contractual relationships in their supply chain to determine whether
they have any U.K. operations responsible for complying with European Union regulations,
a Steptoe & Johnson LLP attorney said June 24.

Chemical and pesticide manufacturers should determine wherever a U.K. entity discharges
its EU regulatory obligations, Darren Abrahams, a partner in Steptoe &
Johnson’s Brussels’ office, told Bloomberg BNA. He discussed near term actions chemical
manufacturers may want to undertake in light of the U.K.’s June 23 vote to leave the
European Union.

If the worst case scenario happens and the U.K. not only exits the European Union
but also doesn't join the European Economic Area (EEA), which consists of the 28 EU
member states along with Iceland, Liechtenstein and Norway, companies with U.K. operations
that discharge regulatory obligations for REACH and the Biocidal Products Regulation
may have to end contracts, arrange new ones and take other actions, Abrahams said.

No chemical or pesticide can be sold in the European Economic Area unless it complies
with the EU's REACH (registration, evaluation, authorization and restriction of chemicals)
regulation or its biocides regulation.

Chemical and pesticide manufacturers that are based outside the European Economic
Area but export their products to the EEA comply with both chemical laws by designating
EEA-based entities, Abrahams said. Those EEA-based companies discharge the regulatory
obligations, he said.

Will U.K. Join EEA?

One uncertainty is whether the U.K. will exit the European Union and join the European
Economic Area or, as Abrahams said seems likely at present, remain outside both legal
structures.

If the U.K. remains outside both legal structures, U.K.-based companies could no longer
discharge the regulatory obligations they currently carry out for REACH or the BPR,
Abrahams said.

The full impact of the U.K. vote won't be known for two or more years, because it
depends on exit negotiations that can't yet begin, Abrahams said.

The U.K.'s vote has no immediate impact, he said.

The negotiating process triggered by Article 50 of the
Treaty on European Union, which addresses a member state's decision to withdraw from the union, begins after
the state formally notifies the European Council of its intention.

Former Prime Minister Punts on Responsibility

Newly resigned Prime Minister David Cameron has said he will leave it to his successor
to issue that notification and formally begin the withdrawal process.

That means, Abrahams said, the formal exiting process may not begin for months.

Once the negotiations begin, it will take the full two years allowed under Article
50—a timeline that can be extended—to complete the enormous amount of work needed
to legally separate the U.K.'s and EU's integrated legal and regulatory systems, he
said.

That gives businesses time to prepare for divergent possible outcomes, he said.

Capital, Tax Implications

Herb Estreicher, a partner with Keller and Heckman LLP, agreed companies have time
to make preparations but said getting ready for possible Brexit scenarios will take
time.

U.S. companies that have set up an affiliate in the U.K. that serves as their only
representative, meaning it discharges their REACH obligations, may need to soon start
looking at options to establish an only representative in the EEA, he told Bloomberg
BNA by e-mail.

Companies will have to consider capital requirements as well as income and value added
tax implications, he said.

Challenges for U.K. Chemical Manufacturers

Abrahams said U.K. chemical manufacturers face different and trickier challenges.

Under REACH, chemical companies that make more than one metric ton but less than 100
metric tons of a chemical must register that substance by 2018.

Non-European chemical manufacturers can appoint an only representative in the EEA
to discharge their regulatory compliance, Abrahams said.

The REACH regulation, however, doesn't allow a company located in the EU—as the U.K.
will be until the exit process is complete—to appoint an only representative, he said.

The U.K. exit negotiations are unlikely to be completed by 2018, but U.K. chemical
manufacturers may want to consider contingency plans, such as having an arrangement
with an EU-based company to take over registration and other compliance obligations,
Abrahams said.

Considering this contingency plan should be only a paper exercise, he said.

Transitional Period Said Likely

Most likely the U.K. and EU will negotiate some kind of transitional period, he said.

“If worst comes to worst, and the U.K. does not become a member of the European Economic
Area, then the U.K. companies will need to appoint EU-based only representatives and
transfer the registrations to them.”

Groups of chemical manufacturers that have formed consortia or Substance Information
Exchange Forums
(SIEFs) and appointed a U.K.-based company to be the lead registrant as they jointly
register the same chemical should think about contingency plans, Estreicher said.

Similar to the U.K. chemical manufacturers, these consortia and SIEFs should ensure
that an EU-based company is willing to take on the lead registrant role if worst comes
to worst, he said.

To contact the reporter on this story: Pat Rizzuto in Washington at
prizzuto@bna.com

To contact the editor responsible for this story: Larry Pearl at
lpearl@bna.com

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